Monday, March 15, 2010

Failed auction for Globalive cost taxpayers millionsPrime Minister Stephen Harper’s decision to overrule the CRTC and allow Globalive to proceed with its wireless service in Canada, cost taxpayers many tens, if not hundreds of millions of dollars.

The Hill TimesMarch 15, 2010By Brent Fullard

TORONTO—Prime Minister Stephen Harper’s decision to overrule the CRTC and allow Globalive to proceed with its wireless service in Canada, cost taxpayers many tens, if not hundreds of millions of dollars.

The explanation of this is both very simple and very troubling, especially since the Harper government is pointing to this failed exercise involving Globalive as its model for success in opening the Canadian telecommunications to foreign investment as announced in the recent Throne Speech.

A policy decision was made by the Harper government to provide for greater competition in the Canadian cellphone market by auctioning off new wireless spectrum. It was argued that competition would be maximized if certain spectrum were only made available to new entrants as opposed to “all comers.”

Such a decision involved acknowledging that there is a trade-off between doing that which fosters the greatest competition in the wireless marketplace and that which maximizes the proceeds from the sale of this spectrum.

The government opted maximizing competition in the service market over maximizing value received, by only allowing new entrants to bid for this new spectrum. Fewer bidders in most auctions invariably leads to lower prices. Such is the dynamic at play here.

So far, so good.

However somewhere the process broke down, because one of the key legislated requirements under the Telecommunications Act, is that holders of wireless spectrum meet the test of being “Canadian.”

Such findings of fact are the domain of the CRTC, who subsequently ruled that Globalive did not meet this test. Therefore, one has to wonder who at Industry Canada allowed Globalive to enter the bidding fray in the first place?

Rather than pursue other options that would have upheld this important legislated requirement of wireless licence holders being “Canadian,” Stephen Harper simply took the advice his former senior adviser, and now paid lobbyist for Globalive, KenBoessenkool.

As reported in The Toronto Sun: “The government’s decision to overrule the CRTC came after Ken Boessenkool met with the chief of staff, the director of policy and then the policy adviser at Industry Canada. He also met with Sean Speer, a policy adviser for the Prime Minister’s Office.”

Harper’s decision to summarily overrule the CRTC, as lobbied for by Boessenkool may have been the optimal outcome for Globalive’s Egyptian controlling shareholders, but it is far from the optimal outcome for Canadians taxpayers.

By running roughshod over the CRTC’s ruling, the Harper government is running roughshod over Canadian taxpayers and all those in the industry who bid on this licence, including those who would have bid, had they known that the Harper governmentwas prepared to turn a complete blind eye to the nationality of the winning bidder.

Had Sprint/Nextel or Verizon or any number of other foreign wireless companies known that this licence was going to be available to foreigners, at the end of the day, you would have seen this auction generate tens, if not hundreds of millions more in the way of proceeds for Canadians taxpayers.

Instead the resolution of this matter took place behind closed doors in an exercise of self-interest on the part of Globalive and its lobbyist, and Industry Canada who were probably anxious to bury their gross error and oversight of allowing Globalive to bid in the first place.

Vastly more elegant solutions to solving this problem exist that would ensure taxpayers receive full value for this valuable wireless spectrum, without forsaking the benefits of increased competition via the arrival of a new entrant.

As with all things in life, due process in everything. In this case a flawed process gave rise to a sub-optimal outcome for taxpayers by Industry Canada and its minister (Tony Clement) whose responsibility when auctioning off finite resources should be ensuring that Canadian taxpayers receive “full value for service” for their wireless spectrum. To quote the oft-used phraseology of Canada’s Finance Minister, Jim Flaherty. Instead the Harper government resorted to political expediency in covering up mistakes of having allowed an unqualified bidder to participate, providing that bidder with an unfair advantage that translated into foregone auction proceeds for taxpayers.

Brent Fullard is the executive managing director of Toronto-based Catalyst Asset Management Inc. and intervened in 2008 before the CRTC and the Supreme Court of Canada to oppose the leveraged buyout of BCE, believing that transaction to be contrary to the interests of all Canadians.

I still think this decision is going to engender lawsuits from many Companies who chose not to participate in the auction, or that would have had different strategies, if they knew that Harper was not going to enforce the law about Canadian ownership.

So not only was it likely that the best price for the spectrum was not offered, costing the government money, lawsuits are still a possibility, which would cost the government even more.

EVENTS

Income Trust Halloween VigilThanks to all who participated in both the Ottawa and Calgary vigils to mark the anniversary of the announcement.

WE"D LIKE SOME ANSWERS

As you well know, the ‘income trust thing’ has grown beyond the
question of whether fair taxes are paid on income from trusts. It’s
become a giant dirty snowball, and as it rolls forward it accumulates
more and more bulk. There are so many unanswered questions. Let's list a few and invite our "Accountable" government and our free press to provide some much-needed answers.

It is said “Trusts are inefficient use of capital. Why?” Two
related questions are ‘Whose money is it, anyway?’, and ‘Do Canadian
investors have a free and efficient market?’

How can information that is already in the public domain at SEDAR
make for a state secret? How could such information be used to harm
the Canadian national interest? And who would cause the harm?

Why won’t the Canadian media investigate the falsehoods and
misrepresentations told by the Minister of Finance to a committee of
Parliament? Was the Minister in contempt of Parliament?

Why won’t the Canadian media report (a) government tax revenues
gained from BCE in 2006 when BCE was a corporation to (b) government
tax revenues that would be gained in 2007 from BCE, if BCE had been
allowed to proceed to a trust, and (c) government tax revenues that
will be gained in 2007 from BCE, when BCE ownership has been carved
up as 45% foreign ownership and 55% large Canadian pension fund
ownership?